Stress Testing (2nd Edition)
First published:
ISBN: 978-1-78272-391-2
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Four Years of Concurrent Stress Testing at the Bank of England: Developing the Macroprudential Perspective
Rohan Churm and Paul Nahai-Williamson
Foreword
Introduction
Response to Financial Crises: The Development of Stress Testing over Time
Stress Testing and Other Risk Management Tools
Econometric Pitfalls in Stress Testing
Stress-testing applications of Machine Learning Models
Four Years of Concurrent Stress Testing at the Bank of England: Developing the Macroprudential Perspective
Stress Testing for Market Risk
The Evolution of Stress Testing Counterparty Exposures
Liquidity Risk: The Case of the Brazilian Banking System
Operational Risk: An Overview of Stress-testing Methodologies
Peacetime Stress Testing: A Proposal
Stress-test Modelling for Loan Losses and Reserves
A New Framework for Stress Testing Banks’ Corporate Credit Portfolio
EU-wide Stress Test: The Experience of the EBA
Stress Testing Across International Exposures and Activities
The Asset Market Effects of Bank Stress-test Disclosures
An Alternative Approach to Stress Testing a Bank’s Trading Book
Determining the Severity of Macroeconomic Stress Scenarios
Governance over Stress Testing
The Bank of England introduced concurrent stress testing of the UK banking system in 2014. All stress-testing frameworks reflect the institutional factors and operating environment relevant to the jurisdiction in which they are implemented, and the UK is no different. The regulatory framework in the UK was re-shaped in response to the global financial crisis. The Bank of England was charged with new microprudential and macroprudential responsibilities, under the supervision of the Prudential Regulation Committee (PRC)11 Formerly the Prudential Regulatory Authority (PRA) board. The Bank of England and Financial Services Act 2016 brought the PRA within the single legal entity of the Bank of England and replaced the PRA board with the PRC. The statutory objectives of the PRA remained unchanged. and the Financial Policy Committee (FPC), respectively. The FPC recommended regular stress testing of the UK banking system in 2013 (Bank of England, 2013), and the framework has since evolved with the aim of supporting microprudential and macroprudential objectives in a comprehensive and coordinated way.
The main microprudential objective of the concurrent stress tests22 In addition to the
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